ASSOCIATES , INC.
Beyond Robo-Advisors:
Using Technology to Power New Methods
of Client Advice and Interaction
Table of contents
Executive Summary................................................................................ 1
Conclusion.............................................................................................. 7
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EXECUTIVE SUMMARY
For the past few years, robo-advisors have been growing in popularity as a wealth advisory service. New investors,
especially millennials, are attracted by low minimums, low fees and the promise of solid returns. Using simple computer
algorithms for setting asset allocations based on age and risk tolerance, robo-advisors automate the rebalancing and
tax-loss harvesting process to keep an investors portfolio on track.
While this type of service generated significant asset growth in the beginning, that growth has leveled off today.
Although the use of robo-advisors continues, the service is being replaced by a broader trend, with financial advisors
using computer programs to assist them in offering investment advice and overseeing client accounts.
There remains a relatively small segment of investors for whom robo-advice can meet most of their needs. However,
the vast majority of investors with broader needsand the advisors that serve themare deriving significant benefits
from this new digital advisory trendthe delivery of digital advice for a digital world, but with humans firmly at the helm.
In fact, the popularity of robo-advisors, and the lessons learned from their implementation, point to a new way advisors,
online brokerages and other financial institutions can do business. These advice and investment providers can build or
acquire a platform offering far more than simply digital advice. It can instead power an environment where a personalized
investment program is successfully delivered through advisor, call center and digital channels, depending on the most
effective channel, as well as client preference.
Call it an automated advice platforma suite of software that can guide investment decisions and much more, from
tax-loss harvesting and rebalancing to data mining and predictive analytics, helping the firm and advisor interact with the
client through the most appropriate channel. Such a system drives efficiencies and cost savings, as well as an enhanced
customer experience.
There are many factors and options that firms should consider when planning and deploying these systems. In this paper,
we look at what is driving the technology behind automated advice platforms, and what firms need to know as they
consider the technology.
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Firms need to be able to serve clients in the way they Advisors also can use data mining to help them
want. Whether serving a millennial who prefers advice understand a clients overall assets and liabilities, far more
via SMS, a baby boomer with a significant investment accurately than before. Armed with that data, the advisor
account and questions about taxes, education funding and the software can work to optimize the portfolio
and estate planning, or a middle-aged, mid-career through targeted portfolio construction and advanced risk
investor who is able to self-direct most account functions management techniques.
with an occasional assist from a call center representative, The more advanced platforms with artificial intelligence can
financial institutions need to figure out what the client analyze a clients behavioral profile and predict life events
wants in terms of advice delivery, and then they need and potential attrition, then suggest ways for the advisor
to deliver on that. Technology is crucial to deliver the to handle such events. The platform may even be able
right customer experience, meeting the customers to identify potential areas for new product development
needs efficiently and consistently. based on client needs and activities.
Many firms understand this, as evidenced by the
numerous acquisitions of robo-advisory firms that large The real innovators are those that will
asset managers have made over the past few years push their technology beyond robo-advisory.
(e.g., BlackRock and FutureAdvisor, John Hancock and With the right planning, they can deploy a
Guide Financial, and Invesco and Jemstep), as well comprehensive automated advice platform.
as companies that have built their own robo-advisory
solutions, like Schwab and Vanguard.
But, the real innovators are those that will push their
technology beyond robo-advisory. With the right planning,
they can deploy a comprehensive automated advice
platform. Beyond just providing investment advice, this
kind of platform can work alongside advisors and call
center reps to provide complete and holistic financial
planning and investing for a firms entire client base.
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Technology aids transparency, too; when everything is running through the automated advisory platform, it is easy to
report to the client exactly what is happening, and why. Similarly, periodic reportingquarterly, yearly or as often as the
client wantscan be easily automated as well.
Finally, regardless of the channel, the best automated platforms will record each interaction, as well as any client
feedback, both for regulatory purposes and to enhance future interactions.
With current advisor practices, the new rule will not likely make it profitable for advisors to service smaller accounts.
However, technology particularly software leveraging robo-advisor approachescan enable firms to service these
smaller accounts while still meeting the fiduciary rules no-commission and best-interest mandates. Technology, in short,
will allow firms and advisors to provide best-interest advice to those smaller fee-based accounts while still turning a profit.
The fiduciary rule is broader than that, however, and technology will be crucial to meeting all of its precepts. Any advice
that is given to a retirement client must be in the clients best interest, no matter how big or small the client and no matter
what channel that advice is delivered through.
The right technology can make sure that takes place, ensuring an algorithm or an advisor does not recommend the
wrong investment product, for example, and making sure that the advice given is consistent across all channels.
Technology also will keep track of what advice is given, so that it is easy to prove to regulators that the advice and the
execution of that advice were in the clients best interest.
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Step three Implementation: The program or the financial advisor then explains the rationale behind the proposed
investment program and makes any adjustments based on client interaction. Once the client agrees, the investments
can be automatically made using the proper investment vehiclefor example, the mass market investor may need a
mutual fund or ETF, while the high net worth clients investments may need to be in a separate account or held in a trust.
Step four Monitoring: After the automated advisory platform makes an investment, the algorithms constantly track
how that investment is performing. It compares the results against individualized benchmarks, with the appropriate
action taken based on preset criteria and with actions either performed automatically by the system or with the
intervention of the financial advisor. The action could be as simple as monitoring drift and rebalancing as needed.
The action also could be more complex, such as tax-loss harvesting, transaction cost optimization, or flagging
an issue for further action by the call center or advisor.
Step five Performance and servicing: Here we see the full benefits of the omni-channel servicing model that
an automated advisory platform supports. How investment reports, account statements, funding requests and other
periodic client messages are best delivered depends on client preference and advisor commitments, as well as on the
content of the communications themselves. Properly configured, the platform can automatically select the best channel
to ensure each message is properly delivered and received.
Step six Event-driven reinvention: Client situations continuously change (e.g., new job, inheritance, health
complications, retirement). These life events may necessitate significant changes to the portfolio. Some of these changes
can be handled automatically by the platform, but many will require the intervention of a human advisor. The platform and
advisor, working in tandem, can come up with the best solution, such as a new investment product, shifting to a new
service channel, or moving into a UMA or UMH. With an automated advice platform, this can all be done faster, more
efficiently and at much lower cost than doing it with little or no technology.
CONCLUSION
It should not be a question of if but rather when a firm will deploy an automated advisory platform. The future of the
financial advisory industry will lean heavily on technology, and those firms that lag behind are bound to miss out on the
benefits to clients, advisors and the firm overall.
Leading firms will put in place platforms that take into account the needs of clients and advisors, ensuring that advisors
gain a powerful tool that helps them serve their clients more effectively and efficiently. The robo-advisor trends in recent
years gave rise to fears that advisors would be cast aside by technology. But, it is now clear that advisors are as
important as ever. An automated advisory platform can augment advisors expertise, ensuring that clients get the best
adviceno matter what channel they prefer.
About CGI
Founded in 1976, CGI is one of the largest IT and business process services
providers in the world. We combine innovative services and solutions with a disciplined
delivery approach that has resulted in an industry-leading track record of delivering
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proximity model of serving clients from 400 locations worldwide, provides the scale
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